Management Accounting and Management Decisions by liu15037


  Accounting and
Management Decisions

                  Slide 1-1
Management Accounting for Managers
 • Management accounting exists because
   managers require information to make decisions
 • Primary focus of management accounting is
   towards users within an organization
 • Management accounting does not exist to
   generate data, but it exists because managers
   require information for decisions

        Framework for Management Accounting
  Strategic Planning   Focus on organization’s objectives
 Management Control    Effectiveness and efficiency of resource use
 Operational Control   Effectiveness and efficiency of tasks

                                                                Slide 1-2
Frameworks for Management Accounting
             OPERATIONAL             MANAGEMENT               STRATEGIC
               CONTROL                CONTROL                 PLANNING

Structured   Accounts receivable     Budget analysis        Tanker fleet mix
             Order entry             Short-term             Warehouse and
                                        forecasting            factory location

             Inventory reordering    Engineered costs
             Inventory control       Variance analysis      Mergers and acquisitions
Structured   Production scheduling   Overall budget         Capital acquisition analysis
             Bond trading            Budget preparation     New product planning
             Cash management

Unstructured PERT COST systems       Sales and production   R and D planning

                                                                               Slide 1-3
Management Decision Process
1. Identify the problem.

2. Perform the necessary quantitative and
   qualitative analyses.

3. Identify alternative solutions to the problem.

4. Evaluate the alternative solutions.

5. Recommend one of the alternative solutions.

6. Implement the recommendation.

                                                    Slide 1-4
Management accounting is ….
• The process of identification, measurement,
  accumulation, analysis, preparation,
  interpretation and communication of
  information that assists managers in making

• Following diagram illustrates 3 roles of
  management accountant

                                             Slide 1-5
    Major Means:                        Major Ends:
Accounting Information               Helping Decisions

1. Problem-solving           1. Managers for long-range
   information                  planning and special decisions

2. Attention-directing       2. Managers for planning and
   information                  controlling routine operations

3. Scorekeeping              3. Outsiders for investors, tax
   information                  collectors, regulators & others

                                                         Slide 1-6
       Planning and Controlling


       Evaluation               Action

• Planning involves setting objectives and the
  means to their attainment
   • What is desired?
   • When and how is it to be accomplished?
   • How is success to be evaluated?
• Controlling involves the implementation of plans
  and the use of feedback to monitor achievements

                                              Slide 1-7
Performance Reports
• Feedback provided by comparing results with
  plans and by highlighting variances

• Reports:
  •   Budget amounts
  •   Actual amounts
  •   Deviations or Variance
  •   Explanation

                                          Slide 1-8
    Performance Report

                   Budgeted Actual or
                   Amounts Amounts Variances Explanation

Various Expenses

Net Income

                                                  Slide 1-9
Example #1:
• The Parent Teacher Organization (PTO) of Trudeau Elementary
  School held a fund-raising fair in the school gymnasium. The
  PTO president had prepared the following budget, assuming
  200 attendees who spend an average of $20 each, and
  donations of all other resources:
• Revenues                      $4,000
  Food and beverages                800
  Prizes                            500
  Supplies                          300
  Custodial services                200
  Total costs                   $1,800
  Income                        $2,200

• Afterwards, the PTO treasurer determined that 150 people had
  attended the fair, and total revenues were $2,250. Cost of food
  and beverages was $750. All prizes were awarded. Supplies
  cost $180, and custodial services were $500 due to damage to
  the gymnasium floor.
                                                             Slide 1-10
Example #1: (cont’d)
• Prepare a performance report that shows how
  actual results differ from budgeted results.

• Which variances deserve further examination?

Management by Exception

                                                 Slide 1-11
Management Accounting
• Roots based in manufacturing
• Evolved to include service organizations
• Elements applicable to non-profits

Key Success Factors
• The factors that must be managed successfully to
  achieve organizational success

                                                 Slide 1-12
                  Product Life Cycle
  • The various stages through which a product passes,
    from conception and development through
    introduction into the market through maturation and,
    finally, withdrawal from the market


            Product     Introduction   Mature   Phase-Out
          Development     to Market    Market   of Product

                                                   Slide 1-13
                    The Value Chain
• Value chain is the set of business functions that add value
  to the products or services of an organization


      Customer                                & Service
       Service                                Process

     Distribution                             Production


                                                           Slide 1-14
 Example 2: Starbucks Value Chain
• For each activity, identify the value chain function
  that is being performomed:
   • Process engineers investigate methods to reduce the
     time to roast coffee beans and better preserve their flavor
   • A direct-to-your-home mail order system is established to
     sell custom coffees
   • Arabica coffee beans are purchased and transported to
     company processing plants
   • Focus groups investigate the feasibility of a new line of
     Frappuccino drinks
   • A hot line is established for mail-order customers to call
     with comments on quality and speed of delivery
   • Each company owned retail store provides information to
     customers about the process used to make its coffee

                                                           Slide 1-15
Two Themes
• There are two themes when choosing among
  accounting systems and methods

• Cost-Benefit Theme
  • How well the system and methods will achieve
    management goals in relation to their costs?
  • Incremental cost of implementing versus incremental

• Behavioral Theme
  • How will the system and methods affect the decisions
    (behavior) of managers?
  • Budgets force managers to plan
  • Performance reports have enormous impact on behavior

                                                     Slide 1-16
  Distinctions Between Management
  Accounting and Financial Accounting

                    Management                 Financial
                    Accounting                Accounting

Primary Users   Organization managers       External parties
Choices          Costs versus benefits          G.A.A.P.
Behavioural     Influence on managerial     Measurement of
Implications           behaviour           economic activity
Time Focus         Future orientation       Past orientation
Time Span               Flexible              Less flexible
Reports                Detailed            Summary reports
Activities       Less sharply defined     More sharply defined

                                                           Slide 1-17
Additional Topics
•   Line versus Staff authority
•   Controller versus Comptroller versus Treasurer
•   JIT and CIM philosophy
•   Professional Ethics
•   Adapting to Change

                                                     Slide 1-18
Suggested Problems
•   Summary Problems 1, 2, 4 (page 27)
•   Questions 2-4, 6-8, 10, 12, 16 (page 31)
•   Problems 2, 8, 12 (page 32)
•   Case 2 (page 37)

                                               Slide 1-19
Assignments Due January 15
• Chapter 1 Assignment
  • Question 9
  • Problem 3, 7, 11
  • Case 1, 2

• Accounting Resume

• Readings
  • Chapter 2
  • Chapter 3

                             Slide 1-20
Case 1: Augustana Coffee News
• You are the owner of “Augustana Coffee News”, a
  newsprint paper that is free to the public.
  Revenue is based solely on advertising sales.

• Identify all costs involved in operating this
  business. Identify any assumptions made

                                                  Slide 1-21

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